SWIFT for Corporates– Questions Answered

Technology and Connectivity
SWIFT for Corporates – Questions Answered
SWIFT for Corporates
– Questions Answered
Nigel Raymont, Senior Vice President, Regional Sales, Global Payments and Cash Management,
Asia Pacific, HSBC, Hong Kong and Caroline Lacocque, Head, Corporate Connectivity, Asia Pacific,
SWIFT, Hong Kong
• The preceding article looked at
how businesses are focusing
more than ever on liquidity
management – with SWIFT as
part of their solution. This article
covers answers to questions
that companies might ask when
considering using SWIFT.
• The decision to use SWIFT
depends on a company’s
individual circumstances and
business requirements.
• Arguably, the first factor to
consider is the visibility of funds
as businesses want to keep
track of their cash at all times
and be fully aware of how much
remains unused.
• Migrating to SWIFT naturally
requires a business case. There
is a one size fits all offering
whereby the cost depends on
the transaction volume and type
of connectivity required.
C
orporates considering using SWIFT want to know the
answers to several questions. What are the benefits?
What if a company already has a single cash management
banking partner? Is SWIFT only an option in a multi-banked
environment? Is there an ideal shape and size of company that
fits the SWIFT offering?
Fierce lobbying persuaded a reluctant bank-owned SWIFT
to open its door to corporates in 2001, and since 2007 it has been
attracting corporate participation as a result of its standardised
corporate environment (SCORE). To date, approximately 500
corporates have migrated to SWIFT.
The implementation of SWIFT for corporates is not as
difficult as one might think and the opportunities provided
considerably outweigh the investment and effort required. This
article sets out the key factors that will lead corporate treasurers
to the optimal answers for their business.
What Does SWIFT Actually Offer Companies?
There is a common misconception that SWIFT is only for
corporates with large transaction volumes. Rather, SWIFT’s
offering can be tailored to suit a variety of needs (see Figure 1).
FIGURE 1: SWIFT’s Offerings are Tailored to a Company’s Needs
SWIFT connection
Volume of message
types
Alliance Lite
– web-based
Up to 4,000 messages
per month
Target – new companies with lower volumes
SWIFTNet
– direct access
Unlimited
Global companies that prefer to maintain the SWIFT
connection in-house
Service bureau
Unlimited
SWIFT connection is hosted and maintained by a third party
Member
concentrator
(indirect access)
Unlimited
A SWIFT member that will offer a broader remit of services,
such as registration and receiving SWIFT invoices, including
administration of the SWIFT contract
Comment
Source: SWIFT
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SWIFT for Corporates – Questions Answered
Benefits for Companies
Lower Costs and Straight-Through Processing
Corporates have found that the disciplines set out by SWIFT such as presenting standardised payment files
and receiving standardised bank statements have resulted in higher straight-through processing (STP) rates.
SWIFT creates a single communication channel allowing for transaction instructions to be transmitted
efficiently between a corporate and its banks. The more banking relationships, the higher the savings.
In addition, standards used by SWIFT for payment files, bank balances and deal confirmations allow
increased STP, thus improving staff productivity by reducing manual input. Banks also benefit from high STP
rates since no manual intervention is required, and, to that end, they will be more disposed to offering a tariff
that reflects the automation level.
That said, it is important to be cautious when dealing with regulated countries since banks will require
supporting documentation for cross-border payments in accordance with local regulations. While the
underlying fee can be lower due to the “clean” nature of the payment data presented, there will be charges to
cover the costs of validating and processing the supporting documentation. However, SWIFT’s file transfer
mechanism, which is content-agnostic, can be utilised to process this documentation, as well as SWIFT’s
new ISO 20022 XML standards1.
The flip side to this is that a company with established cash management banking partners should already
have ironed out the creases.
Network Availability, Security and Reliability
Leonard Schrank, former chief executive officer of SWIFT, commented that airline passengers require
100% uptime when flying – 99% is simply not acceptable. The same is true for SWIFT, which boasts
99.999% availability, a reliability rate that is hard to top. It is important to remember that though some of
the leading international banks may have highly robust infrastructures because of the size and scale of their
own networks, the same may not be true at the local bank level where companies may suffer from regular
breakdowns of their electronic banking systems.
Visibility of Funds
Arguably, this should be the first factor to consider. Although the sharing of e-statements has been available
for at least three decades (based on the exchange of SWIFT messages) the process of aggregating through a
leading cash management bank’s delivery channel takes time to set up – and, indeed, maintain. SWIFT is “bank
agnostic” allowing data to be received directly, thus facilitating the process of collation. A company only
needs to inform its banks to report balances and transactions to its own SWIFT address.
Information is key as businesses are focusing more than ever on effective liquidity management. They
want to keep track of their cash at all times and be fully aware of how much remains unused. SWIFT offers
a simplified retrieval process allowing the company to receive electronic bank statements directly from all
counterparty banks, and has the flexibility to be extended to receive interim and intra-day statements.
1. ISO 20022 is the standard set by the International Organization for Standardization (ISO) to provide the financial industry
with a common platform for the development of messages in a standardised Extended Markup Language (XML) syntax.
For more information, see www.iso20022.org. For other definitions and concepts relating to SWIFT not included in this
article, see the preceding article or consult the SWIFT website, www.swift.com.
HSBC’s Guide to Cash, Supply Chain and Treasury Management in Asia Pacific 2010 143
Technology and Connectivity
Deciding whether to connect to SWIFT and whether it is the optimal solution depends on the company’s
individual circumstances and business requirements. The benefits of SWIFT for corporates include the
following.
SWIFT for Corporates – Questions Answered
Technology and Connectivity
Compliance
Although Sarbanes-Oxley (SOX) is a piece of legislation aimed at reforming the accounting and financial
practice and governance in the US, its influence is nevertheless felt in every corner of the globe, so becoming
close to an international standard. In the context of SOX, supporting a number of bank interfaces requires
the application of stringent controls. It is easier then to have a single interface, which, as company users
comment, significantly reduces the administrative effort in maintaining accurate records and maintaining upto-date bank communication processes.
Despite the potential advantages for companies considering SWIFT, one nagging doubt may still linger:
What’s in it for the banks? For decades they have been espousing the benefits of their own electronic
channels. Is there any benefit to them in ditching these treasured platforms?
Benefits for Banks
There is a risk that a company’s bank is not supportive of the SWIFT channel approach. However, there are
benefits for banks as outlined below.
Role as Innovator
Banks are embracing corporates that use SWIFT. Remember that SWIFT is owned by banks, and therefore it
was the banks that voted to allow companies access. SWIFT alters the dialogue between banks and corporate
customers, shifting the focus to be less on proprietary technology and more on strategic management. Banks
are keen to present themselves as innovators, encouraging their clients to migrate to SWIFT and showcasing
SWIFT as a viable alternative to their own channels. Even with a standards backbone set up, there is still
plenty of opportunity for a bank to differentiate itself and compete efficiently.
Enhanced Value-Added Services
Where a corporate customer has decided to migrate to SWIFT as its primary channel, the bank is free to
focus on its unique selling points – and, indeed, enhancing them. Instead of spending money on the core
information technology infrastructure, investment in future will be on value-added differentiation. This is
already happening. Take, for example, receivables management. Accounts receivable in a country, region or
regions has always been considered “too difficult to do”, yet that has been proven wrong.
Opportunity for Additional Flows
A bank that leads the dialogue with a company has a clear advantage in capturing additional flows. A
corporate can truly appoint a “global” bank for its accounts payable processing. As previously mentioned, the
increase in STP rates is good news for banks that are keen to control their costs.
Response to Company Demand
The danger for the banking community in ignoring the demand for SWIFT is tantamount to burying its head
in the sand. If banks don’t take the lead in forwarding the agenda, a competitor will. Remember, banks are
keen to present themselves as innovators – for example, by linking SWIFT connectivity to payment file
formatting. After looking at the risks, SWIFT concluded that all companies could join, and that there were
benefits in doing so for companies and banks alike.
How Broad is the Business Case?
Having examined the relative benefits to corporates, and indeed for banks, the final consideration is the key
elements of a business case for the corporate to advance SWIFT for corporates. Here we have drawn on the
144 HSBC’s Guide to Cash, Supply Chain and Treasury Management in Asia Pacific 2010
SWIFT for Corporates – Questions Answered
Joining SWIFT;
Integration of systems;
Process re-engineering; and
Project management (internal or external).
Migrating to SWIFT naturally requires a business case. Common drivers follow the benefits to companies
as mentioned above. Yet in and of themselves they don’t stand up in isolation. Following are some of the
key drivers.
Multi-bank management: Does a company have to be multi-banked to move to SWIFT? The answer
is no. But how many companies keep all their eggs in one basket? None. Since the challenge for the
treasurer is keeping many mouths fed, core lending banks are keen for asset-light ancillary business,
hence most companies have more than one banking partner. Furthermore, coordinating flows of data is,
as mentioned earlier, a challenge using the traditional approach.
Optimising return on investment: Specifically investment in enterprise resource planning (ERP) systems.
SWIFT connectivity now further enhances the ERP business case: the more instances of integration that
can be achieved, the better the usage. One company – admittedly a large multinational – has estimated
the return on investment of switching to SWIFTNet at 406%, resulting from a marked reduction in
connection failures, simplification of the number of interfaces from 40 to one, and finally, an increased
volume of activity through working with a single channel.
Format standardisation: As previously suggested, combining SWIFT connectivity with a broader
project can result in significant benefits. For the past two decades, a number of formats have been
available – SWIFT emulation, EDIFACT (e.g. PAYMUL)2 and ERP proprietary formats – yet none have
really worked. All have spawned different quests by the various users to try to find a common group
where integration can be simplified and uniform. The XML ISO 20022 standard provides the first real
opportunity to achieve this.
SWIFT has a one size fits all offering whereby the cost depends on the transaction volume and type of
connectivity required. There are three ways of connecting:
Direct connection;
Through a service bureau
Using Alliance Lite (the newest, low-cost web-based connection)
Conclusions
Single bank or multi-bank? It doesn’t really matter. Better questions to ask are: What is the strategic direction
of the company? and, to achieve that, how would SWIFT help? A number of key issues have been examined
above – the benefits to the company, the benefits to the bank, the business case for SWIFT and a checklist
for implementation. Does it all add up? If so, maybe it’s time for your company to call its leading cash
management banking partner and SWIFT to invite them over for coffee and a chat.
2. EDIFACT is the electronic data interchange standard for administration, commerce and transport. The standard has been
adopted by the United Nations for business messages, and is managed by SWIFT. PAYMUL is the multiple payment order
message type used in EDIFACT.
HSBC’s Guide to Cash, Supply Chain and Treasury Management in Asia Pacific 2010 145
Technology and Connectivity
success of others companies that have successfully implemented SWIFT.
Is joining SWIFT so challenging that the project is unrealistic because of the amount of spending on IT?
There are costs, of course, to cover: